Forum Post: Reform Wall Street to serve the people Part 2

On the surface this appears to be a situation in which an astute trader has correctly anticipated a decline in the share price of C & Company and has made a profit from his knowledge. It is sometimes claimed that the fall in price would have happened anyway. It could also be claimed that the sale and others like it, without matching buyers, caused the market to fall. It would then be held that the trader had taken away the opportunity for a genuine shareholder to sell his holding at $10 per share.

When short sellers act together this becomes a bear raid which causes the weakest companies or currencies to fall costing the public their livelihoods and their savings.

If shares are to continue to be a way for investors, whether individual or corporate, to finance production and employment then the market must be free from such destructive forces. Genuine buyers must be linked with genuine sellers without intermediates gambling to their disadvantage on every rumour. While such pure trades were not possible manually they are now possible electronically.

Bonds and other instruments The same logic must hold good for trading bonds and the many sophisticated instruments that have been created. There is no good reason to allow short selling or any trade in which the buyer is not directly connected with the seller electronically.

Currencies Short selling currencies will probably be needed for commercial purposes in support of international trade. For example if a toy manufacturer has a contract to deliver $1 million of toys to the USA in 10 monthly deliveries from UK he will be buying materials and paying labour in UK during the year and receiving dollars to pay those costs. He wants to know the dollars he gets will convert to sufficient sterling so he sells the dollars he does not yet have in the market at the price the market thinks will apply in 3, 6, or 9 months time. He can be sure of his profit before he signs the contract.

However this legitimate short selling is dwarfed by the currency gambling by traders who are using rumours to take profits out of the market and endanger national reserves. The solution is to authenticate genuine sales of future revenues by authorised audited corporations and ban unauthorised short selling.

Winners and losers It is easy to see how a useful means to finance business and employment has turned into a piranha pool which consumes the weak to benefit the rich. George Soros claims the size of the financial markets has grown out of all proportion during the past 40 years of deregulation and now is endangering all world prosperity. Particularly in USA and UK the financial earnings have become a large part of GDP which the countries will be reluctant to surrender. However the public in both countries have suffered from the inflated hopes and the crashing realities of the bail outs.

Its time to return to reality. To make markets serve the community instead of destroying it.